Question 1

According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to

Accepted Answer

A)   lower costs of services to offset a fall in demand.
B)   develop cost-saving process innovations.
C)   invite foreign direct investment in domestic industries.
D)   embrace and promote open market capitalism.
E)   import new consumer products and export agricultural products.F) D) and E)
G) A) and B)

Question 2

The theory of ________ was the first to explain why unrestricted free trade benefits a country.

Accepted Answer

A)   Heckscher-Ohlin
B)   national competitive advantage
C)   free trade
D)   absolute advantage
E)   zero-sum gameF) C) and D)
G) A) and B)

Question 3

One barrier to subsequent entries in an industry dominated by first movers is

Accepted Answer

A)   a laissez-faire stance toward trade adopted by first movers.
B)   implementation of policies to maximize imports and minimize exports.
C)   specializing in the production of goods for which firms have a comparative advantage.
D)   the ability of first movers to benefit from increasing returns.
E)   a decrease in the variety of goods available to consumers and increase in the cost of existing goods.F) B) and C)
G) B) and D)

Question 4

The factor endowments of a country refer to government resources made available to help businesses.

Accepted Answer

A) True 
 B)False

Question 5

Which trade theory suggests that trade is a positive-sum game in which all participating countries fetch economic gains?

Accepted Answer

A)   Heckscher-Ohlin theory
B)   mercantilism
C)   comparative advantage
D)   Leontief's paradox
E)   Samuelson critiqueF) A) and B)
G) A) and C)

Question 6

Factor endowments, demand conditions, related and supporting industries, and ________ are the four broad attributes that make up Porter's Diamond Model

Accepted Answer

A)   firm strategy, structure, and rivalry
B)   diminishing returns
C)   government intervention policies
D)   first-mover advantages
E)   staff hierarchy and trainingF) All of the above
G) A) and E) A

Question 7

According to the product life cycle theory, as demand for a product grows rapidly in the United States, it will also grow rapidly in other advanced nations and diminish potential exports from the United States.

Accepted Answer

A) True 
 B)False

Question 8

Software development is an expensive process, but manufacturers are able to spread out the costs of the development over the hundreds of thousands of software packages sold to consumers. What is helping to drive down costs per unit in this situation?

Accepted Answer

A)   antidumping measures
B)   economies of scale
C)   diminishing returns
D)   labor productivity
E)   first-mover advantagesF) D) and E)
G) C) and E)

Question 9

A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

Accepted Answer

A) True 
 B)False

Question 10

Vernon's product life cycle theory was based on the idea that most new products were initially produced in the United States.

Accepted Answer

A) True 
 B)False

Question 11

According to Vernon, what eliminates the need for pioneering U.S. firms to look for low-cost production sites in other countries?

Accepted Answer

A)   The uncertainties and risks inherent in introducing new products are very low.
B)   The demand for most new products tends to be based mainly on price.
C)   U.S. labor costs are relatively low compared to global standards.
D)   Firms can charge relatively high prices for new products.
E)   The production of innovative products in other advanced countries limits the potential for exports from the United States.F) A) and E)
G) A) and B)

Question 12

Factor endowments are unit cost reductions associated with a large scale of output.

Accepted Answer

A) True 
 B)False

Question 13

Explain the concept of absolute advantage and provide an example of this concept.

Accepted Answer

According to Smith, countries should spe...

Question 14

Porter noted a lack of attention to improving manufacturing processes and product design in the United States He pointed to ________ as the reason for this.

Accepted Answer

A)   a predominance of company leaders having finance backgrounds
B)   a lack of trust between management and laborers
C)   the flexible nature of competition
D)   the abundance of domestic industries
E)   moving too quickly to globalizationF) D) and E)
G) C) and E)

Question 15

Discuss the concepts of constant returns to specialization and diminishing returns to specialization.

Accepted Answer

The simple comparative advantage model developed above assumes constant returns to specialization. By constant returns to specialization
we mean the units of resources required to produce a good (cocoa or rice) are assumed to remain constant no matter where one is on a country's production possibility frontier (PPF). Thus, we assumed that it always took Ghana 10 units of resources to produce 1 ton of cocoa. However, it is more realistic to assume diminishing returns to specialization. Diminishing returns to specialization occur when more units of resources are required to produce each additional unit. While 10 units of resources may be sufficient to increase Ghana's output of cocoa from 12 tons to 13 tons, 11 units of resources may be needed to increase output from 13 to 14 tons, 12 units of resources to increase output from 14 tons to 15 tons, and so on. Diminishing returns imply a convex PPF for Ghana, rather than a straight line. It is more realistic to assume diminishing returns for two reasons. First, not all resources are of the same quality. A second reason for diminishing returns is that different goods use resources in different proportions.

Question 16

In Appellia, it takes 10 units of resources to increase its output of sugar from 12 tons to 13 tons, but 11 units of resources to increase output from 13 tons to 14 tons, and 12 units of resources to increase output from 14 tons and 15 tons, and so on. The need for increasing resources is an example of

Accepted Answer

A)   comparative advantage.
B)   diminishing returns to specialization.
C)   absolute advantage.
D)   mercantilism
E)   Porter's diamond model.F) B) and C)
G) A) and C)

Question 17

What most accurately describes the four attributes that make up Porter's diamond?

Accepted Answer

A)   Absence of any single attribute does not impact effectiveness of the diamond.
B)   The effect of one attribute is contingent on the state of others.
C)   The diamond is not a mutually reinforcing system.
D)   Chance events, such as major innovations, do not affect Porter's diamond.
E)   Only in the absence of one of the four attributes can government policies influence Porter's diamond.F) A) and B)
G) A) and D)

Question 18

For years, many U.S. corporations made cameras. Today; however, most cameras sold in the United States are imported from Japan and few are manufactured in the United States. Which trade theory does this demonstrate?

Accepted Answer

A)   product life cycle
B)   Heckscher-Ohlin
C)   absolute advantage
D)   comparative advantage
E)   mercantilismF) B) and C)
G) A) and E) A

Question 19

Consider the two countries of Swala and Atlantis. Swala is a major producer of wheat and rice while Atlantis specializes in the production of marble and automobile parts. Engaging in free trade benefits both countries since Swala is an agrarian nation and Atlantis lacks arable land. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it; however, this conclusion is based on which inaccurate assumptions?

Accepted Answer

A)   We have assumed a simple world in which there are only two countries.
B)   We have assumed the prices of resources and exchange rates in the two countries are dynamic.
C)   We have assumed there are barriers to the movement of resources from the production of one good to another within the same country.
D)   We have assumed that agrarian nations do not specialize in producing fertilizers.
E)   We have assumed diminishing returns to specialization.F) A) and D)
G) A) and B)

Question 20

New trade theory argues that, through its impact on economies of scale, trade can

Accepted Answer

A)   increase the average costs of goods.
B)   enable the global market to support a wide range of enterprises.
C)   negatively affect the first-mover advantage for all products
D)   increase the variety of goods available to consumers.
E)   prevent diminishing of returns and promote constant returns to specialization.F) D) and E)
G) A) and C)

Exam 6: International Trade Theory

According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to

Correct Answer
verified

The theory of ________ was the first to explain why unrestricted free trade benefits a country.

Correct Answer
verified

One barrier to subsequent entries in an industry dominated by first movers is

Correct Answer
verified

The factor endowments of a country refer to government resources made available to help businesses.

Correct Answer
verified

Which trade theory suggests that trade is a positive-sum game in which all participating countries fetch economic gains?

Correct Answer
verified

Factor endowments, demand conditions, related and supporting industries, and ________ are the four broad attributes that make up Porter's Diamond Model

Correct Answer
verified
A

According to the product life cycle theory, as demand for a product grows rapidly in the United States, it will also grow rapidly in other advanced nations and diminish potential exports from the United States.

Correct Answer
verified

Software development is an expensive process, but manufacturers are able to spread out the costs of the development over the hundreds of thousands of software packages sold to consumers. What is helping to drive down costs per unit in this situation?

Correct Answer
verified

A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

Correct Answer
verified

Vernon's product life cycle theory was based on the idea that most new products were initially produced in the United States.

Correct Answer
verified

According to Vernon, what eliminates the need for pioneering U.S. firms to look for low-cost production sites in other countries?

Correct Answer
verified

Factor endowments are unit cost reductions associated with a large scale of output.

Correct Answer
verified

Explain the concept of absolute advantage and provide an example of this concept.

Correct Answer
verified
According to Smith, countries should spe...
View Answer

Porter noted a lack of attention to improving manufacturing processes and product design in the United States He pointed to ________ as the reason for this.

Correct Answer
verified

Discuss the concepts of constant returns to specialization and diminishing returns to specialization.

Correct Answer
verified

What most accurately describes the four attributes that make up Porter's diamond?

Correct Answer
verified

For years, many U.S. corporations made cameras. Today; however, most cameras sold in the United States are imported from Japan and few are manufactured in the United States. Which trade theory does this demonstrate?

Correct Answer
verified
A

Correct Answer
verified

New trade theory argues that, through its impact on economies of scale, trade can

Correct Answer
verified

Exam 6: International Trade Theory

According to the product life-cycle theory, the high cost of U.S. labor gave U.S. firms an incentive to

Correct AnswerverifiedShow Answer

The theory of ________ was the first to explain why unrestricted free trade benefits a country.

Correct AnswerverifiedShow Answer

One barrier to subsequent entries in an industry dominated by first movers is

Correct AnswerverifiedShow Answer

The factor endowments of a country refer to government resources made available to help businesses.

Correct AnswerverifiedShow Answer

Which trade theory suggests that trade is a positive-sum game in which all participating countries fetch economic gains?

Correct AnswerverifiedShow Answer

Factor endowments, demand conditions, related and supporting industries, and ________ are the four broad attributes that make up Porter's Diamond Model

Correct AnswerverifiedA

According to the product life cycle theory, as demand for a product grows rapidly in the United States, it will also grow rapidly in other advanced nations and diminish potential exports from the United States.

Correct AnswerverifiedShow Answer

Software development is an expensive process, but manufacturers are able to spread out the costs of the development over the hundreds of thousands of software packages sold to consumers. What is helping to drive down costs per unit in this situation?

Correct AnswerverifiedShow Answer

A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

Correct AnswerverifiedShow Answer

Vernon's product life cycle theory was based on the idea that most new products were initially produced in the United States.

Correct AnswerverifiedShow Answer

According to Vernon, what eliminates the need for pioneering U.S. firms to look for low-cost production sites in other countries?

Correct AnswerverifiedShow Answer

Factor endowments are unit cost reductions associated with a large scale of output.

Correct AnswerverifiedShow Answer

Explain the concept of absolute advantage and provide an example of this concept.

Correct AnswerverifiedAccording to Smith, countries should spe...View AnswerShow Answer

Porter noted a lack of attention to improving manufacturing processes and product design in the United States He pointed to ________ as the reason for this.

Correct AnswerverifiedShow Answer

Discuss the concepts of constant returns to specialization and diminishing returns to specialization.

Correct AnswerverifiedShow Answer

What most accurately describes the four attributes that make up Porter's diamond?

Correct AnswerverifiedShow Answer

For years, many U.S. corporations made cameras. Today; however, most cameras sold in the United States are imported from Japan and few are manufactured in the United States. Which trade theory does this demonstrate?

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

New trade theory argues that, through its impact on economies of scale, trade can

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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A

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According to Smith, countries should spe...
View Answer

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A

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